17 of 18 people found the following review helpful
Audacious greed and incompetency revealed (3.75*s),
This review is from: Plunder and Blunder: The Rise and Fall of the Bubble Economy (Paperback)
The title of this book captures perfectly and succinctly the nature and performance of the high-flying US economy over the last fifteen years and its painful, yet very preventable, financial nosedive that has taken tens of millions of average people with it. As the author states, the stock market bubble in the late 90s and the grossly inflated housing market of the mid-2000s and the attendant investment bank meltdown were not inevitable. The cast of characters that failed to recognize the situations - or so many of them allege - and/or to perform professional regulatory functions to deflate the bubbles is many: the head of the Fed Alan Greenspan, the entire Fed Reserve Board, the SEC, virtually every economist in the country, the business media, home appraisers, bond-rating agencies, the Treasury Dept and other administration bodies - the list is quite long.
And then there is the greed aspect - the plunder element. Investment and commercial bank executives knew - or if they didn't, their incompetence defies belief - that they were raking huge fees off the sale of asset bubbles, based on bogus securities. Or in the case of AIG, based on the sale of credit default swaps, a form of securities insurance, that they had no intention of making good on. Households, pension funds, and the like have lost trillions in the real wealth that they invested in now deflated assets, only to see that wealth now held by those executives, who in the author's words, are borderline criminals. Who can disagree with the author's call for accountability, although there is no chance of that occurring?
The financial sector has become an increasingly huge component of our economy. Thirty percent of corporate profits in the US were attributed to that sector in 2004, a huge increase over bygone eras. By its very nature, that sector is subject to speculation: it swaps paper. Yet, it has become far too important to simply let free-run, as free-market ideologues regard as imperative. The author points out the numerous measures that could have been taken by the aforementioned to deflate the two bubbles before they became serious problems.
The book is best at demonstrating the sheer incompetence of those who should have seen the bubbles. If there is any luster left on Alan Greenspan, at one time referred to as the greatest central banker ever, it would have to be on the part of those who insist on keeping their heads buried neck-deep in sand. In addition, the business sections of the leading media come under withering attack by the author for their cheerleading and failure to analyze and investigate. And there is more than a hint that the economics profession, as a whole, was extremely negligent.
The author notes that the US economy operated quite well without being under the influence of bubbles for the thirty years after WWII. In that era workers with the influence of union contracts obtained increasing wages based on increased productivity that permitted the purchasing of a middle-class standard of living without resort to massive amounts of credit. But that virtuous circle of increasing wages, consumption, and investment didn't continue. Cracks in the economy began to appear with workers taking the brunt of it with the Reagan era assault on unions and the competition of offshore low-wage workers. Inequality rose, with more wealth based on stock market valuations due to such developments as leveraged buyouts and the proliferation of dot-com startups. The stock market bubble was underway.
The book is short and fairly light on explanations, some of which are inadequate or confusing. The author's explanations of budget deficits, interest rates, and the valuation of the dollar and their interactions are at best insufficient. While, it is beyond the author's control, books written within a few months of the onset of the current financial crisis lose currency very quickly. Many painful chapters involving bailouts, bankruptcies, takeovers, and economic stimulation are left to be written over the next few months. Nonetheless, the book is a concise and scathing look at the causes and fallout of this economic crisis through Oct, 2008.